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Why Prices Rise Faster than they Fall

Author

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  • Sheldon Kimmel

    (Economic Analysis Group, Antitrust Division, U.S. Department of Justice)

Abstract

For decades the fact that input price hikes are passed on faster than input price cuts was thought to be well explained by the assumption that competitive firms fully pass on all input price changes, so they can't price asymmetrically, so asymmetric pricing behavior is limited to oligopolies, firms that do all sorts of bizarre things (finding yet another one being no big deal). However, Peltzman found no effect of concentration on such asymmetric pricing, raising the puzzle of why competitive industries generally price asymmetrically. This paper solves that puzzle.

Suggested Citation

  • Sheldon Kimmel, 2009. "Why Prices Rise Faster than they Fall," EAG Discussions Papers 200904, Department of Justice, Antitrust Division.
    • Handle: RePEc:doj:eagpap:200904
    as

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    File URL: https://www.justice.gov/atr/public/eag/248396.pdf
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    References listed on IDEAS

    as
    1. Ronald W. Ward, 1982. "Asymmetry in Retail, Wholesale, and Shipping Point Pricing for Fresh Vegetables," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 64(2), pages 205-212.
    2. Jeremy A. Verlinda, 2008. "Do Rockets Rise Faster And Feathers Fall Slower In An Atmosphere Of Local Market Power? Evidence From The Retail Gasoline Market," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 581-612, September.
    3. William J. Baumol & Richard E. Quandt & Harold T. Shapiro, 1964. "Oligopoly Theory and Retail Food Pricing," The Journal of Business, University of Chicago Press, vol. 37, pages 346-346.
    4. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
    5. Jochen Meyer & Stephan von Cramon‐Taubadel, 2004. "Asymmetric Price Transmission: A Survey," Journal of Agricultural Economics, Wiley Blackwell, vol. 55(3), pages 581-611, November.
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    Cited by:

    1. Robert A. Ritz, 2015. "The Simple Economics of Asymmetric Cost Pass-Through," Cambridge Working Papers in Economics 1515, Faculty of Economics, University of Cambridge.
    2. Brucal, Arlan & Tarui, Nori, 2021. "The effects of utility revenue decoupling on electricity prices," Energy Economics, Elsevier, vol. 101(C).
    3. Maurizio Aragrande & Mauro Bruni & Alberico Loi & Roberto Esposti, 2017. "The effect of EU 2006 sugar regime reform on vertical price transmission," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 5(1), pages 1-20, December.

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